Are we at the start of a new paradigm for how European start-ups fund themselves?
Amsterdam and Malta-based blockchain technology incubator Web3 Ventures is planning an initial coin offer (ICO) in the first quarter of 2018 using a currency called GeoToken.
At the recent Uprise Festival in Dublin, Web3 launched its decentralised autonomous infrastructure called UNL (Universal Name Locator), a universal addressing system powered by blockchain that it intends to become the next standard for addressing and location.
‘ICOs can render technology monetisable using the Hollywood model, where people develop on behalf of the community and step back from product ownership after the release’
– EMANUELE FRANCIONI
The UNL framework divides the Earth’s surface into a grid of 4.8 sq m with a unique identifier of each grid made up of nine characters, called a Geohash, which is similar to an IP address.
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Effectively, Web3 is applying a blockchain approach to mapping physical and digital assets on Earth’s surface.
Instead of funding UNL through equity, the company’s founders, Emanuele Francioni and Fulvio Venturelli, are planning an ICO, which they hope will enable them to fund and incubate other start-ups using this mechanism.
Venturelli told Siliconrepublic.com that Web3 is taking the role of incubator to bring UNL infrastructure to the blockchain community and is seeking no profit from intermediating services built on top of it.
He explained that people will be able to transact directly with each other using UNL’s native currency, the GeoToken, when they purchase or sell a location domain name, store data in a localised manner or access applications built on top of the UNL platform.
To the established order of things, Web3’s approach might sound a bit unorthodox but it is pretty much in keeping with a trend that is disrupting the venture funding business.
According to a recent report from CB Insights, more than 250 blockchain teams have completed ICOs since January 2016.
The report said that in the second quarter of 2017, total funding raised by ICOs surpassed equity financing for the first time and this trend continued in the third quarter of 2017.
Venturelli believes ICOs are overtaking equity funding. “We believe so, otherwise we wouldn’t be starting this. It is a completely different market. The cool thing about an ICO is that it is a fail-fast strategy, so you immediately know if your product is going to be successful or not. Traditionally, start-ups had to build a market around a product and bring it to market in the hope that it would work and attract funding.”
The fail-fast strategy of funding via ICOs is also reminiscent of how Hollywood funds movies, explained Francioni, with investors coming together to fund a project and then parting ways once it has been released and the receipts are gathered.
“We want to do things in the same way and create a swifter model for funding. It is also a good way to start completely autonomous organisations.
“ICOs can render technology monetisable using the Hollywood model, where people develop on behalf of the community and step back from product ownership after the release,” Francioni explained.
“Our ICO is happening in March and it is going to be the start of a worldwide, decentralised service.
“We have seen similar projects raise amounts in the hundreds of millions of dollars. We do not need to raise that kind of amount. We want to develop a viable set of services based on an autonomous platform, and we return the profits to the community.”
While ICOs are still a curiosity and are being treated with suspicion by various governments and regulatory authorities around the world, there is no denying that they are happening.
The question is, how long they will continue as a trend? Or are they here to stay?